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June 12, 2008

UMG Loses Promo CD Sale Suit

A federal judge handed a loss to Universal Music Group yesterday over the issue of whether promotional items given out may be resold.  Universal said they were licensed and the First Sale Doctrine does not apply.  The judge said they were classic gifts and, yes, the doctrine did apply.  Cue the Nelson ha-ha from the Simpsons.

UMG sued Troy Augustino for copyright violation because he sold promo copies of UMG CDs on eBay.  Augustino, with the help of the Electronic Frontier Foundation, fought back.  He claimed the so-called license text printed on the CD was not a license, that the distribution of the discs by UMG constituted a gift, or under the circumstances, UMG abandoned the subject CDs under California law.  The court reviewed summary judgment motions and analyzed each of these points.

After careful analysis of how the transaction of distributing a promo CD is conducted, noting that UMG does not ask for the discs to be returned after a period, and examining prior precedents comparing licenses to gifts, the Court concludes that the distribution of promo CDs is a gift.  The Court stated:

Looking to the economic realities of the transaction, UMG's distribution of Promo CDs provides the recipient with many critical rights of ownership, including the right to perpetual possession and the freedom from obligations to UMG. Accordingly, UMG's distribution of Promo CDs to the music industry insiders is properly characterized as a gift or sale, not a license, and title to the CDs transferred to the insiders. Augusto is thus protected by the first sale doctrine. (Slip Op. at 8)

The Court did not stop there.  It reviewed the second argument that the CDs were gifts under federal law.  The law only covers consumers. The Court rationalized that music insiders who received the promotional items were influential consumers, and this brought them in the ambit of the statute.  Further analysis showed that music insiders treated the license as a gift by routinely disposing of CDs.  Hence, title was transfered from UMG to music insiders and subject to the First Sale Doctrine.

The third claim that UMG abandoned the CDs under California law was rejected as Augustino could only show passivity on the part of UMG.

A copy of the ruling is at the EFF web site here.

June 12, 2008 | Permalink

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